A stronger long-range investment outlook across asset classes

After a tumultuous 2022, the future appears brighter. Many asset classes offer better long-term potential than cash across a range of asset classes. Many investors who fled to cash may now opt to revisit their asset allocation.

“Entering 2023, our long-term capital markets return assumptions show a more appealing investment environment,” says solutions portfolio manager Michelle Black. “We see better corporate fundamentals and a currency tailwind more than offsetting potentially slower global economic growth, most notably in China.”

Following the sharp decline in US equities, valuations are more reasonable. “We are also optimistic on non-US equities, which should be propelled by a combination of higher dividend yields, multiple expansion and a weaker dollar,” notes Black.

US fixed income returns should improve in large part from a higher starting point in yields, but also may benefit from price appreciation and declining yields. From a total return perspective, the solutions team finds emerging markets debt to be attractive. Yields are higher than in other areas of fixed income, and the US dollar could be a tailwind for local currency debt returns.

An excerpt from 'Outlook - Midyear Issue 2023' from Capital Group, research provider and adviser to St. James's Place Wealth Management

Forecasts shown for illustrative purposes only. Past results are not a guarantee of future results.

All asset classes reflect asset class proxy benchmarks used in Capital Market Assumptions (CMAs). All assumptions are for market asset classes only and are reviewed at least annually. These figures represent the views of a small group of investment professionals based on their individual research and are approved by the Capital Market Assumptions Oversight Committee. They should not be interpreted as the view of Capital Group as a whole. As Capital Group employs The Capital System™, the views of other individual analysts and portfolio managers may differ from those presented here. They are provided for informational purposes only and are not intended to provide any assurance or promise of actual returns. They reflect long-term projections of asset class returns and are based on the respective benchmark indices, or other proxies, and therefore do not include any outperformance gain or loss that may result from active portfolio management. Note that the actual results will be affected by any adjustments to the mix of asset classes. All market forecasts are subject to a wide margin of error. EM = emerging markets. EM debt is a blend of 50% emerging markets debt denominated in US dollars and 50% emerging markets debt denominated in domestic currency. For full list of benchmarks used, please see the disclosures page. A high-yield bond is one with a lower credit rating than an investment-grade bond. High-yield bonds typically offer a higher rate of interest because of a greater risk of default. SOURCE: Capital Group